Tuesday, April 22, 2014

In a FACTA credit card receipt truncation case, the United States Court of Appeals for the Ninth Circuit recently reversed the district court's denial of class certification for alleged violations of FACTA/FCRA, holding that whether class treatment would render the magnitude of a defendant's liability enormous is not an appropriate reason to deny class certification under Rule 23(b)(3).

The plaintiff filed a complaint against a movie theater chain (AMC) on behalf of himself and those individuals similarly situated, alleging violations of FACTA. The plaintiff alleged that from December 2006 to January 2007, AMC issued credit and debit card receipts from some of its automated box offices that included both the first four and the last four digits of the credit card, an alleged violation of FACTA. The district court denied class certification under Federal Rule of Civil Procedure 23(b)(3), finding that a class action was not the superior method of litigating the case because AMC had made a good faith effort to comply with FACTA after this lawsuit was filed and the magnitude of AMC's potential liability was enormous and out of proportion to any harm suffered by the class.

As you may recall, FACTA requires that credit and debit card receipts issued to consumers not reflect the expiration date or more than the last five digits of the card number. FACTA incorporates the FCRA statutory damages provision which allows a consumer to recover damages between $100 and $1,000 for each willful violation of FACTA without having to prove actual damages.

The Ninth Circuit Court of Appeals reversed on appeal, determining that none of the three grounds—the disproportionality between the potential liability and the actual harm suffered, the enormity of the potential damages, or AMC's good faith compliance—justified the denial of class certification on superiority grounds and the district court abused its discretion in relying on them.

The Court held that Rule 23(b) does not permit consideration of whether liability would be "completely out of proportion to any harm suffered by Plaintiff" when deciding whether to certify a class in a FACTA case. The Court noted that the Rule 23(b)(3) superiority analysis must be consistent with the Congressional intent in enacting a particular statutory damages provision.

The Court looked to FACTA itself for evidence of Congressional intent as to the appropriateness of class certification, and noted that although FACTA was amended in 2008 with the Clarification Act, however neither FACTA nor the Clarification Act address the availability of class actions. The court recited that where a statute is silent on the availability of class relief, the Supreme Court has instructed that courts presume it to be available in all "civil actions brought in federal court."Accordingly, as neither FACTA nor the Clarification Act contain a "direct expression" to the contrary, the Court determined it must presume that Congress intended class relief to be available.

The Court also held that denying class certification on the grounds that certification of a class would threaten to impose liability disproportionate to the harm caused is not consistent with Congressional intent. The Court noted that Congress expressly created a statutory damages scheme that intended to compensate individuals for actual or potential damages resulting from FACTA violations, without requiring individuals to prove actual harm. The Court also noted that the plain text of FACTA makes absolutely clear that in Congress's judgment, the $100 to $1000 range is proportionate and appropriately compensates the consumer, but that proportionality does not change as more plaintiffs seek relief.

The court also noted that despite Congress's awareness of the availability of class actions, it set no cap on the total amount of aggregate damages, no limit on the size of a class, and no limit on the number of individual suits that could be brought against a merchant. The court did not agree with the defense argument that language in the "Findings" Section of the Clarification Action provided evidence of Congress's approval of court rulings that denied class certification. The Court stated that "[had] Congress been sufficiently concerned about disproportionate damages as a result of class actions, it would have limited class availability or aggregate damages."

The Court held that consideration of whether class treatment would render the magnitude of a defendant's liability enormous is not an appropriate reason to deny class certification under Rule 23(b)(3). The Court also concluded that allowing consideration of the potential enormity of any damages award would undermine the compensatory and deterrent purposes of FACTA and would subvert congressional intent.The Ninth Circuit also held that the district court's consideration of AMC's post-complaint good faith compliance was inconsistent with Congressional intent in enacting FACTA. Congress did not include any safe harbor or otherwise limit damages for good faith compliance with the statute after an alleged violation.

The Court reserved judgment as to whether a showing of "ruinous liability" (otherwise known as "annihilating damages") would warrant denial of class certification in a FCRA or similar action. The Court also reserved judgment as to whether the district court may be entitled to reduce the award if it is unconstitutionally excessive if the plaintiff prevails at trial. The Court also noted that nothing in the opinion should be construed to limit the district court's ability to consider other Rule 23 factors, including the manageability of a nationwide class, in deciding whether class certification is appropriate.

The district court's order denying class certification was vacated and the case was remanded.

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